Good News For A Small Number of Pension Savers On Low Pay

zagfles

michaels said:

zagfles said:

Malthusian said:

dunstonh said:

When you look at the way salary sacrifice has ballooned over the last two decades, it surprises me that there haven't been serious attempts to close that loophole.   It has turned into one of the major costs of pensions to the treasury, and most consumers are not even aware of it.

Because applying National Insurance to employer pension contributions would mean an effective 3% pay cut to our angels in the NHS and others who currently benefit from high employer contributions. (15.05% tax on 20.6% of pensionable pay per year = 3% out of your pay packet.) It would also have the biggest effect on the people at the Treasury who come up with new taxes (because they are highly paid and in public sector DB schemes).
For a shiny penny into your SIPP, tell me how you would sell a 3% pay cut for nurses (and similar pay cuts to everyone in the public sector) to the electorate. Then how you would simultaneously sell a massive extra annual tax bill to the people who decide how tax bills work. Ready, steady, go!
The alternative - to apply National Insurance to employer DC pension contributions only (thus ensnaring the greedy fat cat plumbers working via limited companies but not Nurse Ratchet or senior civil servants) is not any more politically viable.
It would be far easier just to cut the Annual Allowance again.

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Job 1 Advert: 50k salary, 10% employer pension contribution
Job 2 Advert: 45k Salary, 22% employer pension contribution

Which includes 'taxable salary sacrifice'?

Neither. They aren't "optional remuneration arrangements". See the link. But a job with a 10% employer pension cont with the option of sacrificing pay for more employer pension conts clearly is.
But of course pensions are exempt from the 2017 changes anyway, my point is they could easily be included. Just like other stuff that isn't a taxable benefit if the employer provides them free, but is if the employer provides them as part of a sal sac arrangement, eg car parking at work.

michaels

zagfles said:

michaels said:

zagfles said:

Malthusian said:

dunstonh said:

When you look at the way salary sacrifice has ballooned over the last two decades, it surprises me that there haven't been serious attempts to close that loophole.   It has turned into one of the major costs of pensions to the treasury, and most consumers are not even aware of it.

Because applying National Insurance to employer pension contributions would mean an effective 3% pay cut to our angels in the NHS and others who currently benefit from high employer contributions. (15.05% tax on 20.6% of pensionable pay per year = 3% out of your pay packet.) It would also have the biggest effect on the people at the Treasury who come up with new taxes (because they are highly paid and in public sector DB schemes).
For a shiny penny into your SIPP, tell me how you would sell a 3% pay cut for nurses (and similar pay cuts to everyone in the public sector) to the electorate. Then how you would simultaneously sell a massive extra annual tax bill to the people who decide how tax bills work. Ready, steady, go!
The alternative - to apply National Insurance to employer DC pension contributions only (thus ensnaring the greedy fat cat plumbers working via limited companies but not Nurse Ratchet or senior civil servants) is not any more politically viable.
It would be far easier just to cut the Annual Allowance again.

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Job 1 Advert: 50k salary, 10% employer pension contribution
Job 2 Advert: 45k Salary, 22% employer pension contribution

Which includes 'taxable salary sacrifice'?

Neither. They aren't "optional remuneration arrangements". See the link. But a job with a 10% employer pension cont with the option of sacrificing pay for more employer pension conts clearly is.
But of course pensions are exempt from the 2017 changes anyway, my point is they could easily be included. Just like other stuff that isn't a taxable benefit if the employer provides them free, but is if the employer provides them as part of a sal sac arrangement, eg car parking at work.

How about Job Advert 3: package £60k negotiable and agreeing 30k and 30k pension conts - sal sac?

Dazed_and_C0nfused

michaels said:

zagfles said:

michaels said:

zagfles said:

Malthusian said:

dunstonh said:

When you look at the way salary sacrifice has ballooned over the last two decades, it surprises me that there haven't been serious attempts to close that loophole.   It has turned into one of the major costs of pensions to the treasury, and most consumers are not even aware of it.

Because applying National Insurance to employer pension contributions would mean an effective 3% pay cut to our angels in the NHS and others who currently benefit from high employer contributions. (15.05% tax on 20.6% of pensionable pay per year = 3% out of your pay packet.) It would also have the biggest effect on the people at the Treasury who come up with new taxes (because they are highly paid and in public sector DB schemes).
For a shiny penny into your SIPP, tell me how you would sell a 3% pay cut for nurses (and similar pay cuts to everyone in the public sector) to the electorate. Then how you would simultaneously sell a massive extra annual tax bill to the people who decide how tax bills work. Ready, steady, go!
The alternative - to apply National Insurance to employer DC pension contributions only (thus ensnaring the greedy fat cat plumbers working via limited companies but not Nurse Ratchet or senior civil servants) is not any more politically viable.
It would be far easier just to cut the Annual Allowance again.

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Job 1 Advert: 50k salary, 10% employer pension contribution
Job 2 Advert: 45k Salary, 22% employer pension contribution

Which includes 'taxable salary sacrifice'?

Neither. They aren't "optional remuneration arrangements". See the link. But a job with a 10% employer pension cont with the option of sacrificing pay for more employer pension conts clearly is.
But of course pensions are exempt from the 2017 changes anyway, my point is they could easily be included. Just like other stuff that isn't a taxable benefit if the employer provides them free, but is if the employer provides them as part of a sal sac arrangement, eg car parking at work.

How about Job Advert 3: package £60k negotiable and agreeing 30k and 30k pension conts - sal sac?

I think you've lost us.

Really not sure what you're trying to show.

michaels

I'm trying to suggest that taxing 'pension salary sacrifice' is pretty difficult as it is hard to define what fraction of someones pension is a standard payment (not taxed) and what part is a 'sacrifice deal' and thus subject to tax and NI.

zagfles

michaels said:

I'm trying to suggest that taxing 'pension salary sacrifice' is pretty difficult as it is hard to define what fraction of someones pension is a standard payment (not taxed) and what part is a 'sacrifice deal' and thus subject to tax and NI.

Have you read the link? It's already been done for sal sac for other stuff. Why do you think including pensions would be so different?

Job £30k and free parking, taxed on £30k.

Job £31k with option to sal sac £1k for parking, taxed on £31k.

Kim1965

Malthusian said:

dunstonh said:

When you look at the way salary sacrifice has ballooned over the last two decades, it surprises me that there haven't been serious attempts to close that loophole.   It has turned into one of the major costs of pensions to the treasury, and most consumers are not even aware of it.

Because applying National Insurance to employer pension contributions would mean an effective 3% pay cut to our angels in the NHS and others who currently benefit from high employer contributions. (15.05% tax on 20.6% of pensionable pay per year = 3% out of your pay packet.) It would also have the biggest effect on the people at the Treasury who come up with new taxes (because they are highly paid and in public sector DB schemes).
For a shiny penny into your SIPP, tell me how you would sell a 3% pay cut for nurses (and similar pay cuts to everyone in the public sector) to the electorate. Then how you would simultaneously sell a massive extra annual tax bill to the people who decide how tax bills work. Ready, steady, go!
The alternative - to apply National Insurance to employer DC pension contributions only (thus ensnaring the greedy fat cat plumbers working via limited companies but not Nurse Ratchet or senior civil servants) is not any more politically viable.
It would be far easier just to cut the Annual Allowance again.

Can someone explain what the plumber reference is about please. 

Malthusian

Kim1965 said:

Can someone explain what the plumber reference is about please. 

Anyone working via a limited company currently enjoys salary sacrifice on all the pension contributions they make via their limited company, on which they pay no NI. By contrast, if they were a sole trader, they would have to make personal contributions out of post-tax income, for which they would get income tax relief but not NI relief. Employees without the option of salary sacrifice similarly pay NI on employee pension contributions.

A plumber is a typical example of a relatively modest earner who would often work via a limited company, and would have to pay extra tax if employer pension contributions became subject to NI. (I.e. not the kind of "fat cat" who Governments like to pretend they are targeting when they raise tax.)

zagfles said:

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Never said it wasn't legally possible to specifically target salary sacrifice. I just don't think it's politically possible to target a new tax at private-sector employees only, which is effectively what you are doing if you levy NI on employer pension contributions to DC schemes but not on DB ones.

zagfles

zagfles said:

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Never said it wasn't legally possible to specifically target salary sacrifice. I just don't think it's politically possible to target a new tax at private-sector employees only, which is effectively what you are doing if you levy NI on employer pension contributions to DC schemes but not on DB ones.

If you levy employer's NI on pension conts in the public sector, it's revenue neutral for the govt! OK there's more going into the NI fund rather than general taxation but they can just nick it for the NHS as they already do.

For employee NI, AIUI all public sector schemes use net pay, so public sector employees already pay NI on their pension conts.

So the govt could levy NI on all pension conts, whether DC or DB. In the public sector it would be revenue neutral for the treasury and make no difference to employees, in the private sector it would be an extra tax on employers, and also employees who use sal sac, but not those who use net pay or RAS.

Politically? Don't know. If Liz reverses the employer NI rise as well as the employee that would partially compensate.

Kim1965

Malthusian said:

Kim1965 said:

Can someone explain what the plumber reference is about please. 

Anyone working via a limited company currently enjoys salary sacrifice on all the pension contributions they make via their limited company, on which they pay no NI. By contrast, if they were a sole trader, they would have to make personal contributions out of post-tax income, for which they would get income tax relief but not NI relief. Employees without the option of salary sacrifice similarly pay NI on employee pension contributions.

A plumber is a typical example of a relatively modest earner who would often work via a limited company, and would have to pay extra tax if employer pension contributions became subject to NI. (I.e. not the kind of "fat cat" who Governments like to pretend they are targeting when they raise tax.)

zagfles said:

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Never said it wasn't legally possible to specifically target salary sacrifice. I just don't think it's politically possible to target a new tax at private-sector employees only, which is effectively what you are doing if you levy NI on employer pension contributions to DC schemes but not on DB ones.

Thankyou for explaing that. Im currently a sole trader, its only been the last 5 yrs (mortgage free, kids costing less etc) that ive been able to up pension payments to about 40 % of my nett profit. Missed a trick, bit miffed my accountant has not advised me. How does this work with class 4 national indurance? Currently pay 9%on profits over 9k i think. 

Dazed_and_C0nfused

Kim1965 said:

Malthusian said:

Kim1965 said:

Can someone explain what the plumber reference is about please. 

Anyone working via a limited company currently enjoys salary sacrifice on all the pension contributions they make via their limited company, on which they pay no NI. By contrast, if they were a sole trader, they would have to make personal contributions out of post-tax income, for which they would get income tax relief but not NI relief. Employees without the option of salary sacrifice similarly pay NI on employee pension contributions.

A plumber is a typical example of a relatively modest earner who would often work via a limited company, and would have to pay extra tax if employer pension contributions became subject to NI. (I.e. not the kind of "fat cat" who Governments like to pretend they are targeting when they raise tax.)

zagfles said:

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Never said it wasn't legally possible to specifically target salary sacrifice. I just don't think it's politically possible to target a new tax at private-sector employees only, which is effectively what you are doing if you levy NI on employer pension contributions to DC schemes but not on DB ones.

Thankyou for explaing that. Im currently a sole trader, its only been the last 5 yrs (mortgage free, kids costing less etc) that ive been able to up pension payments to about 40 % of my nett profit. Missed a trick, bit miffed my accountant has not advised me. How does this work with class 4 national indurance? Currently pay 9%on profits over 9k i think. 

For most people relief at source pension contributions (personal pensions or SIPP and some employer schemes) don't reduce the tax or National Insurance they pay.

The benefit is from the basic rate tax relief added to your contribution.  So you pay say £3,000 and the pension company adds £750 courtesy of HMRC.  But it doesn't save you income tax or NI (Class 1, 2, 3 or 4).

Where they do tend to save you some tax is if you are a higher rate payer or liable to the High Income Child Benefit Charge.